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Real exchange rate fluctuations and monetary shocks: a revisit

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Author Info
Shiu-Sheng Chen (Department of Economics, University of Wisconsin-Madison, USA)

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Abstract

In this paper, I first estimate a structural VAR model by following Clarida and Gali (1994) and obtain results indicating that the variance of real exchange rates can be attributed more to monetary shocks when the sample span is extended. In order to further investigate this aspect, I then employ a VAR model with long-run US-UK annual data from 1889 to 1995. According to the variance decompositions, I find that monetary shocks can explain nearly 50% of real exchange rate variance in the long-run sample periods. All the evidence suggests that monetary shocks are indeed more important in a larger sample set. Copyright © 2003 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/ijfe.218
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Publisher Info
Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

Volume (Year): 9 (2004)
Issue (Month): 1 ()
Pages: 25-32
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Handle: RePEc:ijf:ijfiec:v:9:y:2004:i:1:p:25-32

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  1. V.V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2000. "Can Sticky Price Models Generate Volatile and Persistent Real Exchange Rates?," NBER Working Papers 7869, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Lastrapes, William D, 1992. "Sources of Fluctuations in Real and Nominal Exchange Rates," The Review of Economics and Statistics, MIT Press, vol. 74(3), pages 530-39, August. [Downloadable!] (restricted)
  3. Eichenbaum, Martin & Evans, Charles L, 1995. "Some Empirical Evidence on the Effects of Shocks to Monetary Policy on Exchange Rates," The Quarterly Journal of Economics, MIT Press, vol. 110(4), pages 975-1009, November. [Downloadable!] (restricted)
  4. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November. [Downloadable!] (restricted)
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This page was last updated on 2010-1-4.

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